Stocks and euro plunge as gold hits record highs

Global stock markets plunged yesterday as deepening concerns over the euro pushed the currency to 18-month lows while gold prices hit record highs as investors sought safety, dealers said.

They said sentiment turned sharply in the afternoon as US markets opened weaker despite solid economic data, with early losses snowballing in Europe as hopes that the eurozone will sort out its debt nightmare faded badly.

Investor fears of a eurozone default were stoked after Paul Volcker, a special adviser to President Barack Obama and a former Federal Reserve chairman, reportedly warned of the "potential disintegration" of the euro.

Reports in Spain that French President Nicolas Sarkozy had threatened to pull France out of the euro to force Germany to help Greece with its debt crisis added to the nervousness despite a Spanish denial.

Nerves were jangled too after Japan said Group of Seven finance ministers yesterday discussed by phone the Greek debt crisis and the plunging euro.

"We heard a report on efforts in Europe to stabilise the euro," Japanese Finance Minister Naoto Kan said, downplaying the possibility of G7 action as the euro continued to fall.

The G7 - Britain, Canada, France, Germany, Italy, Japan and the United States - have reportedly held telephone conference calls since May 7 on the issue.

Yesterday's rout came after the EU-IMF agreed on Monday on a one-trillion-dollar debt rescue package for the eurozone which initially calmed markets, but confidence in a resolution steadily eroded through the week.

In London, the benchmark FTSE 100 index of leading shares closed down 3.14 per cent to 5,262.85 points. In Paris, the CAC 40 plunged 4.59 per cent to 3,560.36 points and in Frankfurt the DAX tumbled 3.12 per cent to 6,056.71 points.

Madrid, Milan, Lisbon - all seen as weaker eurozone members left vulnerable in the fallout from the Greek debt crisis - were more badly hit, with Spanish stocks down more than six per cent.

On Wall Street, the blue-chip Dow Jones Industrial Average slumped 1.68 per cent at around 1545 GMT, extending heavy losses, while the tech-rich Nasdaq composite plunged 2.44 per cent.

US stocks fell "as festering fears regarding the euro area's debt crisis and the impact of measures being implemented to try to restore sustainable fiscal policy on the global recovery" undercut sentiment, Charles Schwab & Co. analysts said in a client note. The euro dived to $1.2359 at around 1520 GMT, striking its lowest level since late October 2008, and appeared set for further weakness as investors lost faith that the EU-IMF package and austerity measures can halt the slide.

Analysts at Capital Economics in London said they could see the euro falling to parity with the dollar in time if things continued as they were.

"We now expect it to fall to $1.10 this year and to parity against the dollar by the end of 2011. That might seem like a very strong call," they wrote.

"But let's not forget that the euro spent almost three of the first four years of its life below parity. If there is any possibility at all that its life may be coming towards an end, we see no reason why it should not drop to similar levels."